Today’s purchase: AvalonBay Communities

OK, so if you’ve been paying any attention to the market at all this year, you know REITs (Real Estate Investment Trusts) have been taking an absolute pounding. The quality ones are down big, the solid ones are down big. They’re all down pretty big. And I get it … people are freaked out about rate hikes and the impact they’ll have on companies with decent amounts of debt, like REITs. It’s a rational way of thinking for sure, and I’m not arguing with that at all. All I’m saying is, well, don’t let that scare you away from buying solid REITs … companies like AvalonBay Communities.

I picked up a share for $159.91 this morning … and was happy to do it. It doubled my small position and lowered my cost-basis in the process. I now have two shares of the company – shares that make up about 1.84% of my portfolio – at an average cost of $159.58.

AvalonBay Communities

AvalonBay Communities (AVB) owns somewhere in the neighborhood of 288 apartment communities containing 84,158 homes in 12 different states. That’s a good amount of units. Now, the thing about apartments is the owners, like AvalonBay, have had a hard time raising rent in recent years because wages weren’t going anywhere. Well, that seems to be changing now. With more renters making more money, AVB could reasonably raise the rent a tad without causing too much friction.

I’m not saying it’s going to happen – I have no idea how or when the company makes decisions like raising the rent – but even if it asked renters for just $25 more a month, assuming most of the units are occupied (maybe 90%), that would mean a revenue bump of roughly $2 million a month. I just pulled those numbers out of thin air, but it gives you an idea, right?

Another thing is, and you’re just going to have to take my word for it based on something I heard on TV, is that more and more people are renting these days. More and more millennials either can’t buy homes or just decide not to. That has to be a good sign for AvalonBay as well.

As I said at the beginning of this post, AVB is all the way at the low end of its 52-week range ($154.82-$199.52). It’s funds from operating activities have been increasing each of the last three years, its EPS is at a steady 6.35, its P/E ratio is sitting in the mid-20’s and it has a 40% profit margin.

The dividend is at an annualized rate of $5.88 a share (3.67% yield) with a payout ratio of 87.79%. It’s been rising, too. AVB has boosted its payment for six straight years.